6 Best Online & Peer-to-Peer Loans for Bad Credit

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While the digital age has given peer-to-peer lending a facelift, the concept is hardly a new one. Anyone who has ever borrowed money from a friend or relative has participated in peer-to-peer (P2P) lending, albeit informally. Today, the internet has turned P2P lending into a whole new beast, with a variety of online platforms popping up over the last decade that work to connect would-be borrowers with potential citizen investors.

Thanks to the online business models, peer-to-peer lending networks often have lower overhead, which often allows for lower interest rates than traditional lending. But P2P networks aren’t the only name of the game in digital lending. Online lending networks of all types can be a good way to source quotes from a wide range of potential lenders, increasing your chances of finding the right match for your credit.

Best Peer-to-Peer Loans for Bad Credit

Applying for a P2P loan may be a little more involved than other lending platforms due to proprietary grading systems for borrowers. Essentially, peer-to-peer networks often use in-house underwriting systems that look at more than credit scores to get a better gauge of your financial risk. You may be required to answer specific questions about what you plan to do with the money, as well as providing information about your educational and employment background.

As a result of their more extensive grading metrics, some P2P networks can have lower credit requirements than traditional lenders and can be a potential financing solution for those with poor credit to find a loan. While specific credit requirements and underwriting methods will vary by lending platform, our top three picks have flexible credit requirements.

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Although PersonalLoans.com is primarily an online lending network connecting borrowers with banks and other direct lenders, the site also acts as a platform for peer-to-peer lending. Loans can be obtained in amounts of $500 up to $35,000 for qualified borrowers, with loan lengths extending from three months up to six years.

Depending on the lender you select, your funds can be issued as soon as the next business day. While there is no set minimum credit score to apply for a loan through the network, you may need to meet specific income requirements. Additionally, individual PersonalLoan.com lending partners will have their own credit requirements.

Lending Club is one of the oldest online peer-to-peer lending networks, having been established in 2007. The platform offers borrowers personal loans, business loans, auto refinancing loans, and medical loans. You’ll reportedly need a credit score of at least 600 to qualify for a loan through Lending Club, though you may qualify with a lower credit score if you apply for a joint loan with a better-qualified borrower.

Obtain a personal loan of up to $40,000

Annual interest rates from 5.98% up to 35.89%

Minimum credit score of 600

When you apply for a Lending Club loan, your application will be assigned a grade based on the platform’s internal grading system. Grades range from A to G, with A being the best grade, and G being the worst. Each grade level also has five subgrades, with an A1 loan being less risky than an A5 loan. Your interest rate will vary directly with your grade, with A1 borrowers receiving the lowest rate and G5 borrowers receiving the highest rate.

Lending Club loan funds can be obtained in as few as seven days, though it may take longer. The cost of a loan from Lending Club will include both the interest rate and the origination fee. Origination fees range from 1% to 6% of your loan amount, depending on your assigned grade, and will be deducted from your loan when it is issued, meaning the amount you actually receive will be less than the amount for which you applied.

Founded in 2010, Peerform is an online peer-to-peer lending platform specializing in personal installment loans. To qualify for a Peerform loan, you’ll need a minimum FICO credit score of 600, and the platform does not accept joint applicants or cosigners. Additionally, while you don’t need to be employed to qualify, you will need a verifiable source of regular income.

Obtain a personal loan of up to $25,000

Annual interest rates from 5.999% up to 29.99%

Minimum credit score of 600

As with Lending Club, Peerform assigns a grade to borrowers based on a proprietary rating model. Peerform grades range from AAA to DDD, with AAA being the borrowers with the lowest risk and DDD borrowers having the highest potential risk. The interest rate you receive on your loan will vary directly with your grade.

Loan funding can be obtained in as soon as one day but may take up to two weeks. Peerform loans charge a regular interest rate for the loan, as well as a one-time origination fee that will come out of your loan amount at the time of issuance. Origination fees range from 1% to 5%, depending on your assigned Peerform grade, with A+ or lower grades paying 5%.

For all the potential upsides, peer-to-peer lending does have a few downsides, the most prominent of which is that it may take longer to get funding than direct lending. Some P2P sites allow investors to “bid” on individual loans, meaning you may need to wait until your loan is fully financed before your funds can be distributed.

Additionally, there is the potential extra stress of knowing you are borrowing from people, not just a faceless institution, meaning a loan default hits more than just a bank’s bottom line. At the same time, those people aren’t there to help you in the event of a problem, and you generally won’t be able to go into a local branch for in-person help.

Best Online Lending Networks for Bad Credit

While peer-to-peer loans have a growing reputation for being easier to obtain than bank or other institutional loans, you may still have options with direct lenders, particularly subprime lenders who specialize in those with bad credit. As an added benefit, loans from direct lenders may allow for faster financing, with many loans available as soon as the next business day.

One of the easiest ways to find a direct lender willing to take on poor-credit applicants can be through an online lending network. Similar to the P2P networks (without the peers), online lending networks connect hundreds of direct lenders around the country with potential borrowers. Some of our expert-rated lenders offer loans of up to $35,000, with interest rates comparable with many P2P networks.

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Applying for a loan through an online network will require filling out an initial application on the network’s website. After analyzing your information, the network will connect you with the lending partners that best match your needs and qualifications. If none of the network’s lenders are the right fit, you may not receive any offers. Additionally, most networks will have a maximum number of offers (typically four).

Once you select an offer, you will be taken to the lender’s website to finish the loan process. This may require filling out another application with the lender itself, or simply agreeing to the loan terms you were already presented. After you accept the loan terms and electronically sign any required documents, you’ll choose where you want the money deposited.

Unlike peer-to-peer lending platforms, which typically act as the intermediary throughout the loan process (meaning you make your payments to the platform rather than directly to the individual peer lenders), direct-lender networks are typically only involved at the beginning. Once you choose a lender, you’ll complete the loan process with that lender, including making your loan payments for the duration of your loan.

Get a Little Help from Your Peers

The digital age has impacted every facet of business and finance, including consumer lending. Thankfully, many of those impacts seem to have been for the better — like the formalization of peer-to-peer lending, which provides lower rates to borrowers and potential returns for citizen investors.

When you have poor credit, finding a loan can be a challenge, so you need every edge you can get. Online lending networks of all kinds, both P2P and direct lenders, can be a good way to find a loan when more traditional avenues aren’t an option.

Of course, always remember to borrow responsibly, no matter from where you borrow. Peer-to-peer loans will still report to the credit bureaus like any other financial product, meaning they carry the same financial and credit risks. Be sure to make your payment on time every month to avoid negative impacts to your credit score.

Brittney Mayer is a credit strategist and contributing editor for BadCredit.org, where she uses her extensive research background to write comprehensive consumer guides aimed at helping readers make educated financial decisions on the path to building better credit. Leveraging her vast knowledge of the financial industry, Brittney’s work can be found on a variety of websites, including the National Foundation for Credit Counseling, US News & World Report, NBC News,TheSimpleDollar.com, CreditRepair.com, Lexington Law, CardRates.com, and CreditCards.com, among others.

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